Personal tax planning
Tips for taxpayers to consider before the
TAX YEAR END 5th April
Taxpayers can look into a number of schemes to make an efficient use of available allowances:
- ISAs and Pensions are a great way to save for the future, no capital gain tax (CGT) or Income Tax (IT) is payable on these investments;
- The free allowances and incentives offered by the government: pension, Lifetime ISA or tax breaks (if eligible);
- Capital Gains Allowances: investments held outside of an ISA or pension will be subject to CGT. The allowance for Capital gains is set up to £12,300 in 2021-22; this cannot be carried forward to future years, hence if not used it will be lost. Part of the gains coming from such investments should be considered to be cashed in before the end of the tax year to make the most of the tax-free allowance.
- Income-producing investments can be moved to an ISA account. Dividend tax is increasing for extra 1.25% regardless of the paid dividend tax. Therefore, it would beneficial to move income-producing investments inside an ISA, to protect them from tax.
- Salary and personal pension ratio: The tax-free personal allowance for most people is currently £12,570. Salaries over £100,000 are deducted by £1 for every £2 of your income; at the £125,140 mark the last £10,000 of a salary will suffer an effective tax rate of 60%. Contributing to a personal pension scheme or making charitable donations can be effective in reducing a higher salary threshold.
- Child benefits is one of the allowances offered by the government. This benefit is reduced by the income of either of the 2 parents; if the salary of any of the parents is above £50,000 a 10% of the benefit for every £1,000 above the threshold will be lost. This can be reduced by making pension contributions or charitable donations.
